Ingredion Incorporated (NYSE:INGR) Q3 2019 Earnings Conference Call - Final Transcript

Oct 31, 2019 • 08:00 am ET

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Ingredion Incorporated (NYSE:INGR) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jim Zallie

we are excited about the opening in a few weeks of our new allulose production line at our San Juan del Rio, Mexico facility. Our starch-based texturizers delivered solid growth led by specialty potato starches globally. We are formulating systems, which include specialty starches, plant-based proteins and hydrocolloids for consumer-preferred, clean-labeled textural solutions.

For example, we're working closely with customers, both large and small, to innovate and co-create by combining potato starch, pea protein, gums and curd extracts to formulate texturized meat alternatives. Capitalizing on this collaboration, we are actively filling our customer pipeline for plant-based protein ingredients. We were aggressively driving our Cost Smart program, and the results are transforming how we work and deliver value. We have had to make difficult but necessary decisions, which will streamline operations to create a more agile business.

For example, we made the decision to move to an import model and cease production at our Lane Cove Australia facility to address, among other factors, persistent corn cost increases due to water scarcity. In addition, we initiated a significant restructuring of our South America business to reduce organizational layers and enable quicker decision making. As stated previously, we expect to deliver $30 million to $40 million of 2019 year-end cumulative run rate savings, and I look forward to updating you on the program's full-year delivery at our next earnings call.

Now let's move to discussing each region's performance during the quarter. North America operating income was up year-over-year. The increase was driven by improved price mix versus the prior year and benefits from our Cost Smart savings program, which were partially offset by higher net corn costs due to lower co-product values.

South America operating income was also up year-over-year, driven by three factors. Favorable pricing actions, which offset foreign currency impacts, higher volume and benefits from our Cost Smart savings program. Our team in South America has done an exceptional job taking aggressive pricing actions against the constantly fluctuating currency environment. Asia-Pacific operating income was down, driven by increased operating costs in Australia and the continuing weakness across northern Asian economies, impacted by trade disputes.

Our Korea and China businesses have experienced increased input costs and intensified competitive pressure. EMEA operating income was down, driven by higher corn costs primarily in Pakistan and foreign exchange impacts, which were partially offset by strong pricing actions. Now let me turn it over to Jim Gray, who will review the financial results in more detail. Jim?

Executive
Jim Gray

Thank you, Jim. Net sales of $1.457 billion were slightly up for the quarter. Gross profit margin was higher by 50 basis points, driven by favorable price mix, partially offset by higher input costs. Reported and adjusted operating incomes were $155 million and $193 million, respectively. Third quarter reported operating income was lower than adjusted operating income by $28 million due to restructuring costs related to Cost Smart program. These costs were primarily attributable to the transition of our Australian operations to an import model and planned cessation of